Working Paper 393 A Minimum Income Guarantee amidst Joblessness & Vulnerability: A Design for Income Transfers post-Covid 19 and beyond - ICRIER
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Working Paper 393
A Minimum Income Guarantee
amidst Joblessness & Vulnerability:
A Design for Income Transfers
post-Covid 19 and beyond
Santosh Mehrotra
Anjana Rajagopalan
Rakesh Ranjan Kumar
June 2020
INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL
1 ECONOMIC RELATIONSTable of Contents
Abstract ...................................................................................................................................... i
1. Why India Needs Social Assistance as Cash Transfers? ................................................ 3
1.1 The International Experience ..................................................................................... 6
2. Cash transfers in India: the experience so far................................................................. 7
2.1 The Telengana government’s cash transfer: Rythu Bandhu ....................................... 7
2.2 Odisha’s KALIA .......................................................................................................... 7
2.3 PM KISAN: A Central government cash transfer to farmers ..................................... 8
2.4 Issues with the design and implementation of three existing cash transfers to
‘farmers’ ..................................................................................................................... 9
3. The three pre conditions for comprehensive cash transfers: Is India ready? ............ 10
3.1 Issues remain with the delivery mechanism of a MIG even after three preconditions
are met ...................................................................................................................... 12
4. A Minimum Income Guarantee: The Underlying Logic and its Design ..................... 13
4.1 The Design: A better Targeted Income Transfer ...................................................... 15
4.2 Deprived Rural Household to be targeted ................................................................ 17
4.3 Overall Coverage of the Targeted Income Transfer ................................................. 20
4.4 Amount of Transfer to Households ........................................................................... 21
4.5 Financial Expenditure: Who pays – Centre or States? ............................................ 23
4.6 Suggestions for Additional Category of Rural households for Better Targeting for
Income Transfer ........................................................................................................ 26
4.7 Summary Coverage of the Targeted Income Transfer-MIG: SECC and Census ..... 27
4.8 Benefits received as a share of household’s consumption expenditure .................... 28
5. A Comparative Perspective on the Proposed MIG ....................................................... 29
6. Concluding Remarks ....................................................................................................... 32
References ............................................................................................................................... 34List of Tables
Table 1: The state of Indebtedness of Farmers in India ....................................................... 13
Table 2: SECC-A snapshot .................................................................................................. 16
Table 3: Percentage of Rural Deprived Households with Deprivation criteria across States
................................................................................................................................ 18
Table 4: Percentage of Rural Households Targeted Based on Extent of their Deprivation,
by State................................................................................................................... 19
Table 5: Proposed Scheme of Cash Transfer ....................................................................... 22
Table 6: Cost to state as percentage of GSDP: when states run the programme on their own
or with assistance from central government .......................................................... 23
Table 7: Additional Urban Beneficiary Households and Additional cost of Implementation
of the Targeted Income Transfer............................................................................ 25
Table 8: Additional Rural Households included as beneficiaries of Income Transfer from
Automatically Excluded Category of Households (Fulfilling any 14 Parameter of
Exclusion) .............................................................................................................. 26
Table 9: Summary Table: Beneficiary, Coverage and Expenditure on MIG ....................... 27
Table 10: Summary of Various UBI and Targeted Income Transfer Proposals .................... 30
List of Graphs
Graph 1: Percentage of Automatically Included Rural Households across States ............... 17
Graph 2: Percentage of Rural Households considered for the Proposed Targeted Income
Transfer .................................................................................................................. 20
Graph 3: Percentage of Urban Households considered for the Proposed Targeted Income
Transfer .................................................................................................................. 21
Graph 4: Proposed Income Transfer as a share of Household Annual Expenditure............. 28Abstract
Amidst the bleak picture of increasing joblessness and indebtedness presented by the
National Sample Survey’s employment surveys and debt surveys, a minimum standard of
living for the nation’s poor seems to be under threat. In response to this, recent schemes
inspired by the Universal Basic Income debates appeared to have been designed more for
political considerations, and have glaring identification issues and have been exclusionary.
Rather than adopting a quasi-UBI as suggested in the Economic Survey of 2017 and doing
away with many existing developmental programmes, this paper makes a case for, and
presents the design of, a much better method targeting of transfers as a supplement, keeping
fiscal as well as labour-market outcomes in mind. The sudden exogenous shock of COVID-
19 to the incomes of the poor has made the case of a minimum income guarantee (MIG) for
the poor more urgent. Had a MIG already been in place by early 2020, it would only have
required a ramping up of the transfers to protect the incomes of the poor.
________
Keywords: Universal Basic Income, Conditional Cash Transfer, Minimum Income Guarantee
JEL Classification: I38, H31, H53
Author’s email: santoshmeh@gmail.com; ANJANA.RAJ17@gmail.com;
kumar.rakesh.ranjan@gmail.com
_________
Disclaimer: Opinions and recommendations in the report are exclusively of the author(s)
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iA Minimum Income Guarantee amidst Joblessness & Vulnerability: A Design
for Income Transfers post-Covid 19 and beyond
Santosh Mehrotra, Anjana Rajagopalan & Rakesh Ranjan Kumar1
The concept of Universal Basic Income (UBI) is being debated worldwide. However, in
India, given that public goods like universal health care and quality school education remain
to be provided, it has been difficult to make a credible case for UBI. Without first making
sure that general government (centre and states together) will be able to provide for these
public goods, there is little case for providing for UBI. This paper argues that in India, instead
of substituting existing developmental programme of the government in the short run, any
income guarantee should be supplementary, at the same time keeping fiscal constraints and
labour market in mind. The case for a minimum income guarantee has only been underlined
by the sudden onset of COVID-19, the consequent lockdown of the population and economy,
and the exogenous shock for incomes of the most vulnerable households.
UBI in India came into common parlance with the publication of the Economic Survey in
2016-17 (though the academic literature preceded it by nearly decade). The Survey proposed
an Income Transfer aimed at ‘wiping every tear from every eye’ as a potential alternative to
the diverse array of existing social and anti-poverty programmes.
Long before the post-2017 discussion, the Planning Commission had commissioned one of
the authors in 2008, during the global economic crisis, to examine the feasibility of cash
transfers for the poor, which were discussed within the Planning Commission.2 Around the
same time, another discussion originated from a 2008 series of essays in Economic &
Political Weekly, beginning with Kapur, Mukhopadhaya and Subramanian (2008) arguing for
replacing centrally sponsored poverty schemes with cash transfers. They cited structural
inefficiencies in these schemes—enormous leakage to the non-poor, high barriers to
enrolment, inaccurate identification of eligible individuals, and substantial administrative
costs; they contended that only a miniscule proportion of benefits actually reached India’s
poor. They highlighted the key culprits as an administrative culture that lacked accountability
and poor state capacity. As an alternative, they proposed rerouting public expenditures into a
system of direct cash transfers that would expand recipients’ spending choices, and an
increased funding for local government institutions that are better placed to monitor and
implement such transfers (as opposed to overburdened state- or district-level administrators).
Other policymakers critiqued these claims. A former member of the erstwhile Planning
Commission, Mihir Shah (2008), argued that such transfers were “no magic bullet,” and that
given the widespread failure of rural markets across India, giving the poor cash that they
1
Santosh Mehrotra is a Professor at the Centre for Informal Sector and Labour Studies, Jawaharlal Nehru
University. Anjana Rajagopalan and Rakesh Ranjan Kumar are PhD Scholars at the same centre.
2
First a Planning Commission Working Paper, it was later published: S. Mehrotra, “Introducing Conditional
Cash Transfers in India. A Proposal for Five CCTS”, Indian Economic Journal, Volume: 58, Issue: 2, 140-
161
1cannot utilize is a wasted effort. In the absence of concomitant improvements in public
institutions and private markets, Shah noted, cash transfers would do little to guarantee food
security or generate sustainable livelihoods in comparison to the PDS or MGNREGA.
However, four other academics from abroad pitched in in favour of UBI. Pranab Bardhan
(UC, Berkeley) wrote in 2011 that a UBI is “one of the cleanest and least incentive-disruptive
ideas” for enhancing social welfare. He felt a UBI for India is better than the complicated
task of identifying the poor and is fiscally feasible because the country’s poverty line is
relatively low and a smaller transfer is needed. Bardhan (2016) recommended an inflation-
indexed annual transfer of Rs 10,000 which is 75 percent of India’s 2014–15 poverty line, to
every Indian citizen, which would cost an estimated 10 percent of India’s GDP. Maitreesh
Ghatak (LSE) (2016) proposed a more liberal annual transfer of Rs 13,432, which would cost
11 percent of GDP, to push recipients’ incomes over the poverty line. Vijay Joshi (Oxford)
(2016) recommended a smaller grant equal to 20 percent of the poverty line: Rs 3,500 per
year at a cost of 3.5 percent of GDP. Abhijit Banerjee (MIT) (2016), meanwhile, suggested a
minimum weekly income of Rs 250 for each adult resident (13,000 Rs per year) in lieu of
subsidies and welfare programs. All of them seemed to assume that it was politically feasible
to abrogate all other welfare programmes with a UBI.
Bardhan and Joshi felt UBI could be financed by reducing certain non-merit subsidies like
fuel, fertilizer, and electricity that benefit relatively better-off Indians – we consider later the
political economy constraints on reducing these non-merit subsidies. Bardhan felt additional
savings worth 3 percent of GDP could accrue by eliminating certain corporate tax holidays
and customs-duty exemptions. Joshi also advocated for trimming tax exemptions and doing
away with nonperforming poverty alleviation schemes. A similar argument has recently been
made by Mundle and Sikdar (2020), who estimate that non-merit subsidies and tax
expenditures (also called foregone revenues) amount to a growing share of total public
expenditure, of both the central and state governments. However, Ghatak (2016) felt that a
UBI would require additional taxation and an expanded tax base. For Banerjee, a universal
basic subsidy could replace the PDS and MGNREGA along with other welfare schemes. The
rich would exclude themselves, he argued, if weekly verification for beneficiaries is required.
However, these ideas were also met with heavy criticism. Swaminathan Aiyar (2016) claimed
that universal entitlements cannot empower the poor the way a concerted improvement of
public goods and services can. The government should instead boost spending on public
services. Amitabh Kant (2017) noted it is preferable to give below-poverty-line families Rs
1,000 per month as interest-free loans for productive use. Khera (2016) and Drèze (2017),
and P. Chidambaram (2017) noted that it would not be as politically feasible to roll back
India’s corporate tax exemptions or non-merit subsidies as Bardhan and Joshi had suggested.
However, the debate did not go away. Surjit Bhalla (2017) recommended carving out the
fiscal space for an income grant, for the bottom quintile of the income distribution, partly by
doing away with the PDS and MGNREGA.
In this debate, The Economic Survey of 2017 (led by Arvind Subramanian) suggested a form
of ‘quasi-universal’ transfer of Rs 7620 to 75 percent of the population in order to remove
2poverty, costing 4.9 per cent of India’s GDP. The arguments behind such a transfer were as
follows. First, it would not be viable fiscally at a universal level and hence the top 25 per cent
of the population should be left out. Second, it assumed that such a system of transfer would
be more pro-poor than existing programmes which are hampered by leakages and do not
target the intended populations (for more discussions on these issues, see Khosla (2018) and
Sandefur (2017) for instance).
Ghatak and Muralidharan (2019) propose an Inclusive Growth Dividend (IGD) which is to be
pegged at 1% of GDP per capita, as an universal basic income transfer to all individuals.
“Inclusive” because it would be progressive, as the marginal value of the transfer will be
respectively greater for the poor than the rich. “Growth” means that as the economy grows so
will the GDP, so the income transferred to individuals would also grow over time.
Given this debate, and COVID-19’s sudden shock to the economy, to livelihoods, especially
but not only for the poor, it is worthwhile to restate some of the arguments why a cash
transfer to ensure a minimum guarantee for the poor in India is essential. That is the case we
make in section 1. Section 2 reviews the experience with cash transfers introduced in India so
far, and critiques their design. Section 3 examines the three pre conditions for comprehensive
cash transfers in India, and finds that those prerequisites that were wanting till about six years
ago, are now mostly present, making a minimum income guarantee for the poor
administratively feasible. Section 4, the longest, presents the design of a minimum guarantee
for India. Section 5 compares our proposal with those that have been offered in the literature
on India on this subject. The final section concludes.
1. Why India Needs Social Assistance as Cash Transfers?
There are several reasons why time may be ripe for the Indian state to seriously initiate cash
transfers as a policy mechanism to benefit all the poor (and not merely farmers).
First, the COVID-19 virus epidemic across the globe, and in India, has demonstrated that
India is a highly integrated economy globally, and if it is to take advantage of global
integration, it cannot at the same time be immune to global bads. These are the risks of global
integration – which can be contained but cannot be precluded entirely. India has to be
prepared to respond to such globally-triggered crises, to prevent human tragedy on a vast
scale. Cash transfers are needed more than ever before because the Indian economy is more
vulnerable to exogenous shocks, and India has already seen the adverse impacts on
employment in a series of export-related sectors (for example, gems and jewellery, leather,
textiles, garments, handicrafts) since the global financial crisis of late 2008 (Mehrotra, 2010).
However, the COVID-19 crisis has only underlined this vulnerability to exogenous shocks
even more, as global demand for these labour intensive exports of India will collapse as an
international recession sets in.
The second reason why India needs to move towards cash assistance is the following. India
has had a long history of redistributive poverty reduction programmes, but hardly any
3programmes that provide direct cash assistance to the needy. India has barely three cash
social assistance programmes in place on a large scale, conditional or unconditional.
The first, Janani Suraksha Yojana (JSY), meant to encourage institutional delivery of babies
as opposed to home deliveries that are common, is a one-time cash transfer by the central
government, given to a pregnant mother when she delivers a baby at a public/ private health
facility. The second is the Indira Gandhi Matritva Sahyog Yojana (IGMSY) of 2009, a pilot
in 52 districts for maternity benefit through conditional cash transfer for pregnant & lactating
mothers aged 19 years or above for the first 2 live births. Under the scheme beneficiary
women received Rs. 4000 (later Rs. 6000) in 3 instalments. The NFSA passed in 2013
specified cash maternity benefit not below Rs. 6,000 to every pregnant & lactating woman. 3
With effect from 01.01.2017, IGMSY was replaced by Pradhan Mantri Matru Vandana
Yojana’ (PMMVY), applicable to all districts, wherein payment of Rs. 5,000 is provided to
pregnant women & lactating mothers for the first living child of the family subject to specific
conditions in 3 instalments. Also, the beneficiary receives cash incentive under JSY after
institutional delivery. On an average, a woman gets Rs. 6000. A few state governments also
have a limited number of CCTs, especially to encourage girls’ education. The third, started in
early 2019, is PM KISAN, a cash transfer to farmer-cultivators, somewhat imitative of 2
state-level schemes (KALIA in Odisha, Rythu Bandhu in Telengana, also for farmers) –
which we discuss below.
The need for social assistance is underlined by the fact that the vast majority (91 per cent) of
India’s workforce is informally employed. Such employment is characterised by low income
and also a high variance in that income (Mehrotra and Parida, 2019). This workforce receives
almost no social insurance either (old age pension, death and disability insurance, maternity
benefit). Most of their health expenditures are out-of-pocket, which account for 70% of all
health expenditures in India. This should be unacceptable in any civilised society on
humanitarian grounds. This is especially the case since India is an outlier among emerging
market economies (EMEs) outside of Sub-Saharan Africa (where the mean level of per capita
income is well below India’s) in having such high informality. Only 9 per cent of the total
workforce of 466 mn have social insurance. Only a few have old age pensions, but only those
identified as poor (by the poorly designed census of rural population in 2002 of the Ministry
of Rural Development). The genuinely vulnerable in the unorganised sector, therefore,
deserve social assistance in cash, which goes beyond the other programmes (for example,
public distribution of subsidised cereals; the national rural employment guarantee; and so on).
At the time of the COVID19-driven economic crisis the absence of such an instrument is felt
even more, since the most vulnerable to its human impact are in the unorganized sector.
3
A Quick Evaluation Study on IGMSY by Development Monitoring & Evaluation Office (DMEO), NITI
Aayog (2015-16) revealed that though usually lack of awareness was a reason for exclusion, but in case of
IGMSY 81% of interviewed mothers were aware of the schemes and 72% had even tried to get the benefit.
The coverage of beneficiaries under IGMSY was below 50% in some states, and even the provisioning was
found below the amount prescribed or delayed. 83% of beneficiaries reported Rs. 6,000 as inadequate. It
was suggested that the amount be raised to Rs. 10,000 & paid in 2 instalments (during pregnancy & after
child birth).
4Third, there will continue to be structural change in both employment and output when
economic growth takes place – this, of course, is not exogenous. Thus, millions are already
leaving agriculture for non-agricultural employment (5 mn per annum over 2004-5 and 2011-
12, and slightly lower since then (Mehrotra and Parida, 2019)). Such structural changes
require that the vulnerable are protected during cyclical global or domestic economic
downturns, so that their reliance upon their rural sources of livelihoods does not force reverse
migrations back to rural areas during times of urban/non-agri sector crises.
Fourth, the international experience highlights the need for a social contract. Rodrik (2000,
2004) and Bourguignon et al. (2002) point out that after Second World War, Europe would
probably not have experienced a rise in industrial productivity, which went hand in hand with
economic growth and structural change, without an institutional environment that permitted a
social contract to emerge. In fact, the economic historian Lindert (2004), in a systematic
analysis of the now industrialised countries spanning the 100-year period from 1880 to 1980,
concluded that not only did the size of government and the share of government expenditure
in GDP rise from 11 per cent on average to over 40 per cent of GDP, but this increase was
accounted for almost entirely by the corresponding rise in social transfers (health, education,
social security). Most emerging market economies already have had a few decades of
experience of running conditional cash transfers (CCTs) for the poor, and India can learn
from their experience. India has seen no increase in tax-to-GDP ratio since 1991, despite per
capita incomes having quadrupled. In other words, over the period that India has become the
second fastest, and then the fastest, growing large economy in the world, and is the fifth
largest economy in the world, there is still no increase in tax to GDP ratio.
Clearly, the social contract if ever there was one, is failing. We still have a system of welfare
schemes that are fragmented. Social insurance (old age pension, death and disability
insurance, and maternity benefits cover a fraction of the workforce), and there is practically
no social assistance in the form of cash in a country that accounts for the largest number of
poor in the world.
Fifth, the benefits of cash transfers are many, given that the transfer is direct into bank
accounts from the government (as demonstrated by the Direct Benefit Transfers4). This
should be seen in the Indian context of the leakage of funds in government programmes
(although difficult to estimate exactly) which is large enough to generate a mafia around each
programme. The mafia arises precisely on account of the poor design of programmes: poor
implementation (often blamed as the culprit) is on account of a flawed design. Over time the
mafia develops such serious vested interests in collaboration with the political executive and
the lower echelons of the provincial civil service that it becomes next to impossible for a
radical redesign of the government programme, even if the will exists in the higher echelons
of the national civil service. Thus, reform of such programmes is repeatedly deferred.
4
DBT (Direct Benefit Transfer) is a scheme launched by Government of India to transfer the benefits and
subsidies of various social welfare schemes like LPG subsidy, MNREGA payments, Old Age Pension,
Scholarships etc. directly in the bank account of the beneficiary.
5Sixth, there are many benefits that can flow from cash transfers, which make them superior to
in-kind transfers which predominate in India’s social assistance system (fragmentary as it is).
Firstly, cash transfers give a beneficiary (a) access to products or services from more than one
location, which is difficult to achieve if the beneficiary was given entitlement to a product or
service itself; and (b) cash transfers give beneficiaries the choice to access the product or
services from a private or a government provider, if one or the other cannot provide it, thus
generating competition between them, and hopefully thus improving efficiency. Secondly,
cash transfers facilitate delivery, in a number of ways: monitoring the list of beneficiaries;
details of benefits drawn; the performance of vendors who are servicing beneficiaries can be
published by government websites. Civil authority can use this information to focus on
irregularities. Thirdly, in situations where products are available at two different prices (one
subsidised and the other at a market price) there is an incentive for pilferage. In other words,
dual pricing encourages the practice of selling the product in the higher price market. On
other hand a cash transfer introduces one price for the subsidised good (whether it is cereals,
fertilisers, kerosene). Fourthly, grievance redressal is made easier by a cash transfer system.
Cash transfer is normally based on an IT platform, and redressal is easier as it is possible to
track cash flow.
1.1 The International Experience
Interest in cash transfers has grown significantly since the beginning of the new millennium.
At the end of the 1990s, they had been practiced, for example, only in Mexico and Brazil.
However, 10 years later all of Latin America had introduced conditional cash transfers
(CCTs), as had many other countries in Asia and Africa: Burkina Faso, Nigeria, Kenya and
Yemen; and Turkey, Pakistan, India, Cambodia, Philippines and Indonesia. Evaluations
showed them to be successful in achieving their objectives, hence their rapid spread (Fiszbein
and Schady, 2009 had produced a global review for the World Bank). In these countries
CCTs transfer cash, generally to poor households, on condition that those households make
pre-specified investments in the human capital of their children. There are large programmes
in Bangladesh, Indonesia, Turkey and South Africa, to smaller pilot scale programme in most
other countries. In Brazil and Mexico, however, they are the largest social programme
covering millions of households. In India too, we envisage a large scale programme of a
minimum income guarantee.
The international evidence suggests clearly that CCTs have had beneficial impacts on
consumption and even labour market participation (Fiszbein and Schady, 2009; Hanlon,
Barrientos and Hulme, 2010). Evidence from several Latin American countries shows, on the
basis of a comparison of cumulative distribution of consumption per capita between those
who receive the transfer and those who do not, that current welfare is improved by CCTs.
CCTs have not only improved the overall level of consumption, but also the composition of
consumption. Thus households that received CCTs spend more on food, and within the food
basket on ‘higher quality’ of nutrients than do households that do not receive the transfer but
have comparable overall income levels.
62. Cash transfers in India: the experience so far
There are three cash transfers that have been initiated since late 2017, which we examine in
this section: Rythu Bandhu (RB) scheme (Telengana), the KALIA (Odisha) scheme, and the
PM-KISAN (Union government). What is common to all three is they offer cash transfers to
farmers. They were started in rapid succession between late 2017 (RB), 2018 (KALIA) and
2019 (the Union government one). It is notable that each of these schemes were introduced
literally months before state/national elections were held: RB in September 2017 just before
December elections, in which the ruling party/chief minister returned to power; KALIA in
December 2018 weeks before the state assembly elections, which again returned the
incumbent party to power; and PM-KISAN in February 2019, again just before voting began
in April 2019 for the Lok Sabha elections, where the electoral outcome was similar.
2.1 The Telengana government’s cash transfer: Rythu Bandhu
The RB involves the payment of a fixed amount of money per acre per agricultural season to
farmers for five seasons. It does not formally exclude tenants, but the reality is more
complex. Tenant farmers staged protests in six districts of Telangana, asking to be included in
Rythu Bandhu. However, the protests did not last long for two reasons.
One, tenant farmers are reluctant to access the benefits of Rythu Bandhu or Loan Eligibility
Cards because of the fear of landlords. They fear that if they apply for benefits under RB,
they will not get land the next year. Landlords were reluctant to formalise tenants through
official paperwork not just because they were afraid of losing their land, but also because
they frequently accessed cheap agricultural loans and received crop insurance and
compensation using their land titles. Another reason tenant farmer protests were muted is
because most of them own small parcels of land, which qualifies them for Rythu Bandhu
benefits.
2.2 Odisha’s KALIA
The scheme has four components: a cash transfer of Rs 10,000 per year to households who
own less than five acres of farmland, a livelihood training component that entails the transfer
of Rs 12,500 to landless agricultural households, a one-time cash transfer of Rs 10,000 to
vulnerable agricultural households, and a subsidy on life insurance for cultivators and
landless agricultural labourers.
Launched in December 2018, Rs 10,180 crore will be spent over three years until 2020-21 in
providing financial assistance to cultivators and landless agricultural labourers.Although the
scheme is not linked to the amount of land owned, the government insists it benefits
sharecroppers and cultivators, most of whom own little or no land. Whether you own one
acre or five acres, you get the same financial assistance. This is one difference with RB and
PM KISAN; with RB, the more land you own the more cash you get, since the benefit is per
acre.
7Another difference with both is that KALIA targets 10 lakh landless households, and
specifically SC and ST families. They will be supported with a unit cost of Rs 12,500 for
activities like goat rearing, mushroom cultivation, beekeeping, poultry farming and fishery.
The beneficiary is encouraged to choose an activity with which he is familiar because these
trades require some skill and a network. The idea is to identify an existing capacity and build
on it. Apparently KALIA was introduced as Odisha government wished to avoid a loan
waiver, and decided to go instead for this cash transfer.
The first component of the scheme provides Rs 25,000 to small and marginal farmers as
investment support over five seasons, or Rs 5,000 per season. Sharecroppers, however,
constitute only 57,000 of the total 40 lakh farmers identified as beneficiaries for the first
component of the scheme. This is because many sharecroppers are already small and
marginal farmers. They might have one acre of their own and take five acres on lease.
Unlike the first component of the scheme meant for cultivators, where the state released a
first list of beneficiaries based on its existing databases and then filtered it for exclusions,
people have to apply on their own for the second component (meant for the landless). Where
Kalia differs from RB and PM Kisan is in its second component, in which landless people in
rural areas get training and financial support of Rs 12,500 for adopting seven different
livelihoods.5
Moreover, targeting using land alone is problematic as the Telengana and Odisha experience
has already shown. Odisha has drawn its initial data for sharecroppers from its paddy
procurement database. Sharecroppers who want to register in this system have to get consent
forms from the landholders, certification from a sarpanch (village head) or be verified by a
district agricultural officer. These three options are as difficult to access in Odisha as in
Telangana.
2.3 PM KISAN: A Central government cash transfer to farmers
The scheme aims to supplement the financial needs of all landholding farmers’ families in
procuring inputs to improve crop health and appropriate yields, commensurate with the
anticipated farm income. An amount of Rs.6000/- per year is released (in three instalments of
Rs 2000 each) by the Central Government online directly into bank accounts of the eligible
farmers through Direct Benefit Transfer, subject to certain exclusions (tax payers,
government officers, etc). After getting re-elected, the government had relaxed the
landholding criteria, making the scheme open for large farmers as well; in other words, it
only reaches owner-cultivators, including large farmers.
5
At this point, they will have to indicate their preferred livelihoods and will get the first instalment of Rs
5,000. This will be followed by block-level training, where they will be put in touch with local traders
whom they can sell their produce to and will receive the second instalment of Rs 3,000. After they set up
their new livelihood and submit a photo to the district administration, they will receive the third instalment
of Rs 4,500. One can foresee already in this design the possibility of gaming the system because of the
sequence of transfers tied to activities that will require production of documentation; this is a design flaw.
8The benefit shall be paid to only those farmers’ families whose names are entered into the
land records. Given that tenant farmers will not find their names in the land records by
definition, nor will the landless labourers, they are excluded. The ministry has sought Rs
60,000 crore for FY21 for the PM Kisan.
2.4 Issues with the design and implementation of three existing cash transfers to
‘farmers’
The first issue with the schemes is that they primarily targeted farmers, leaving out millions
of other vulnerable people; and even among farmers they have excluded many categories.
The second issue is that governments seem to have decided that the way out of the crisis in
agriculture, where rural distress keeps rising and farmer suicides don’t show any signs of
stemming, is cash transfers. They are also being perceived as a way out of farm loan waivers,
which many governments (federal and state) have adopted in India, without necessarily
improving the state of rural distress.
Third, they exclude significant parts of the universe they seem to be trying to benefit, and in
doing so may end up worsening some of the inequalities that already pervade rural areas: the
owner-cultivators will benefit, the rest will not.
Fourth, they seem to suffer from a series of problems with identifying the beneficiaries in a
situation where land records are poor, rarely updated, and the quality of data tend to be highly
variable among the states of India. Karnataka and Goa have excellent land records, which
have then been computerized, while in other states the land record updating process is still
going on, so beneficiary lists are still not ready, months/years after the announcement of the
scheme.
Fifth, there are issues with individual schemes. The RB is patently disequalising: the amount
increases with each additional acre of land owned in Telengana. In other words, it is clearly
regressive, when it should be the opposite. If anything, it has implementation issues of the
following kind. Payments were made by cheque to ensure that banks did not debit the amount
to pay off outstanding loans, the state said in a detailed note describing the scheme. This is a
common problem with the Centre’s crop insurance scheme, the Pradhan Mantri Fasal Bima
Yojana. Farmers could present the cheque at any branch of the bank it was issued from in
order to withdraw the money. In other words, the state government cannot even trust the
banking system to fulfil the intention of the scheme; and has to modify the payment
mechanism (via cheque), which creates another bureaucratic hurdle, rather than paying
directly into the bank account of the beneficiary. Issues with the identification of
beneficiaries have bedevilled PM KISAN from the beginning too.6
6
The government had initially hoped to transfer money to 145 million beneficiaries, but in early 2020 only
95 million farmers were registered of which 75 million have been Aadhaar verified. The rest 20 million
registered farmers will get the benefit only after verification of their Aadhaar details.
9What is clear is that whatever the political benefits the governments may have garnered, none
of the prevailing cash transfer programmes can be seen as addressing the real issue of poor
consumption capacity at the bottom of the income distribution, and they are highly
exclusionary in that they targeted exclusively at different categories of farmers while
excluding others who may be even more deserving. In times of a pandemic like COVID 19,
when millions of migrant labour have returned to rural areas, having being rendered jobless
in cities, real wages will fall. The need to income for income supplementation, already great
given the fact that there were already 268 mn poor people in India (NSS 2011-12), only
increased post the pandemic, which raised unemployment to 122 mn unemployed in April
2020.
3. The three pre conditions for comprehensive cash transfers: Is India ready?
In most industrialised countries, social insurance is nearly universal, but social assistance is
much more selective and targeted; India needs to move in the same direction. India has very
limited social insurance (old age pension, death/disability insurance, maternity benefit) for
90% of the workforce that toil as informal workers.7 Even the organized sector is
characterised by the presence of informal workers without social insurance (nearly half lack
social insurance). To make matters worse, what India has is a highly fragmented social
assistance system, with many different kinds of conditional transfers in kind (few in cash).
We are well aware of the debates in the literature on social assistance between universalism
versus targeting, which has been well summarised by Muralidharan and Ghatak (2020, cited
above). However, we believe that a universal minimum income guarantee (MIG) is not
feasible at the current juncture of India’s administrative capability or its fiscal capacity.
India’s fiscal capacity has fallen sharply over 2018-20, with GDP growth sharply down,
declining with every quarter, and the FY21 Budget officially raising the fiscal deficit target to
3.8% of GDP, which will rise further with the Covid19 pandemic contraction of the
economy. We well know that the actual FY20 fiscal deficit was not the officially announced
3.4% of GDP, but as India’s Comptroller and Auditor General admitted, it was 5.68% of
GDP for the centre. In addition, the combined states’ deficit is nearly 3% of GDP, which will
rise further post-pandemic. This is by no means a fiscal situation in which the case for a
universal basic income can be reasonably argued. However, given that post-pandemic the fall
in incomes of the vulnerable will be high, the case for a minimum guarantee is self-evident. 8
We also know that there are three public goods and services – health services, education, and
hard infrastructure – for which both quantitative provision by the Indian state (and its quality)
must improve fast. There cannot be any compromise on these economic and social services, if
India is to realise its demographic dividend before it runs out by 2040. Hence, the fiscal space
7
A Social Security Code is with the Parliament at the time of writing, which converges nine existing laws on
social security, mainly for the organized sector. The unorganized sector, as noted earlier, remains
uncovered, and it is indicated in the Code (that is likely to pass in Parliament within 2020) that the coverage
of unorganized workers will not change any time soon.
8
The stimulus package of Rs 20 lakh crores announced by the central government (until May 17, 2020) has
no provision for cash transfer on a sustained basis.
10for a UBI simply does not exist (unlike what all the authors we cited in section 1
recommend), unless some of the non-merit subsidies and tax expenditures that Mundle and
Sikdar (2020) rightly identify amounting to over 5% of GDP are gradually eliminated. Until
then it is critical that the Indian state moves towards a more targeted, but much more
comprehensive (than the PM-KISAN kind of) cash transfer, for all the poor of India.
Please note that a silent fiscal crisis had preceded the onset of the novel COVID-19 virus,
which caused further disruption to the global and Indian economy. With growth expected to
be barely positive in FY21, the fiscal deficit will rise sharply as economic stimulus packages
are announced, and as the costs of meeting the health crisis mount. Despite the many good
arguments in favour of universalism in cash transfers, there is little or, realistically, no
prospect of a UBI being implemented.
It is not even clear that it should be universal, given the limited administrative capacity, and
the evidence about risks and inefficiencies already experienced with cash transfers that have
already been implemented (briefly discussed by Muralidharan and Ghatak, 2020).
While earlier one of us had argued (Mehrotra, 2010) that Indian conditions were not quite
ripe for cash transfer as a means to ensure an income guarantee, the situation has changed
quite dramatically since then. Later the author argued (Mehrotra, 2016) for a targeted transfer
of cash for the poor who could now be identified well by the government of India.
If cash transfers are to succeed in India, there are at least three requirements that should be
fulfilled: (a) correct identification of the poor beneficiaries; (b) biometric identification of the
beneficiaries; and (c) bank accounts for beneficiaries. Since 2018, we certainly find that these
three preconditions exist, which can enable India to introduce a credible targeted cash transfer
programme.
The first condition is the correct identification of beneficiaries. In all the three censuses of the
rural population (1992, 1997 and 2002) there is evidence of large scale exclusion and
inclusion errors (Mehrotra, 2016, chapter 12). The Government of India completed, with the
state governments, a census of the rural population (in 2013) based on a totally new
methodology (henceforth the Socio-Economic and Caste Census or SECC).9
The new methodology to identify the rural areas relies on much more directly verifiable,
simple, transparent and directly observable characteristics of the vulnerable. Using
transparent criteria, it first excludes the non-poor; second, it similarly uses directly verifiable
criteria to automatically include in the list those who are extremely poor. For the rest of the
population it uses multiple non-money-metric deprivation criteria to rank the population who
are neither excluded nor automatically included.
9
Mehrotra (then the head of Rural Development Division, Planning Commission) was also a member of the
NC Saxena Expert Committee, which reported in 2009, to the Ministry of Rural Development (MORD),
which suggested this transparent design, which was then used by the MORD to conduct the nationwide
SECC.
11The second precondition for a successful MIG would be the following: the introduction of a
biometric identification system to ensure that the correct beneficiaries are actually receiving
the funds. Very rapid progress has already been made in this regard by the initiation in 2010
of a Unique Identification System, or Aadhar. This would require that every adult gets their
biometrics registered in a database and this is used to identify the recipients of cash. 10 By
2012, 220 million had already been registered and the number reached 650 million by July
2014. The Aadhar card (or unique identification system) is now universal in India.
The third prerequisite for a cash transfer system for poor beneficiaries in a country
presupposes that bank or post office accounts are almost universally available for the un-
banked population of the country. The un-banked population of the country accounted for 45
per cent of the urban population and 55 per cent of the rural population (Ministry of Finance,
2013). However, almost every household may well have at least one bank account, thanks to
Jan Dhan and MGNREGA accounts being opened rapidly after 2014.
3.1 Issues remain with the delivery mechanism of a MIG even after three
preconditions are met
Firstly, there are likely to millions of households that may still not have a bank account – a
fact on which we have little firm and up to date evidence, even from the RBI.
Secondly, it is with the third precondition that the most issues will need resolution. Many
households even have more than one account, which is itself a problem, and will pose
administrative issues in the implementation of a MIG, since we need to avoid duplicate
beneficiaries in the same household. This requires immediate seeding of the bank accounts
with the biometric Aadhar card number. That will help the identification of those left out, as
well as those having duplicate accounts. It will also assist matching of total number of
beneficiaries identified through the SECC deprivation criteria and the numbers having bank
accounts. That can lead to a ground truthing of the beneficiaries through gram sabha meetings
at village level. In any case, Jan Dhan account holders cannot be simply chosen as
beneficiaries; the other two preconditions must also hold for the potential beneficiary
household.
Moreover, without the Aadhar seeding of beneficiary account, it will be impossible to prevent
duplicate benefits accruing to the same household.
Third, there are still inclusion and exclusion errors in the beneficiary lists as determined by
SECC. This is partly because the SECC was completed in 2013. The list has to be ‘ground-
truthed’, through gram sabhas meetings, as was proposed earlier (see Mehrotra and Mander,
2008).
10
Andhra Pradesh state made major progress with biometric payment, more than any other state.
Mukhopadhyaya et al. (2014) point out that surveys they conducted show that beneficiaries support carded
payments. They suggest that even without calculating the benefits of lower leakage of benefits, simply
monetising the time saved by beneficiaries in accessing payments under the smart card-based system would
pay for the cost of implementing the same.
12Fourth, the last mile of getting cash to the poor has to be ensured. That means a mechanism
has to be developed whereby the bank/post office is not physically so far from the beneficiary
that it creates opportunity costs for them in terms of travel time, the cost of which will be
foregone wages. Hence, it is critical that a correspondent banking system expands rapidly
before a functional cash transfer system can be put in place. That way the bank virtually
comes to the beneficiary, rather than the latter going to the bank. Similarly, a post office on
average serves about four villages, while a bank branch serves about five villages. All this
implies that without a system of bank correspondents (for example, small village
shopkeepers, post offices) a system of cash transfers is unlikely to be successful.
4. A Minimum Income Guarantee: The Underlying Logic and its Design
India’s poor need to borrow to meet even basic consumption needs. Relieving the cash
constraints of the poor is a critical way forward in the light of the high dependence of the
poor upon non-institutional sources to borrow money in both rural and urban areas. What we
propose is the equivalent to a large scale programme of a minimum guarantee of income for
the vulnerable, which takes the form of an Unconditional Cash Transfer (UCT).
The problem: India’s unemployment situation is worsening (Mehrotra and Parida, 2019),
while at the same time in rural areas in particular, indebtedness has also been rising, leading
to an increase in vulnerability of falling back into the poverty trap. The number of absolute
poor in 2011-12 was 268 million (NSS 68th Round). At the same time, the All-India Debt
and Investment Survey for 2013 (NSS 70th Round) revealed that 51.9 per cent of the 90
million farmer households were indebted in 2013 (Table 1). In addition, often landless
labourers, small/marginal farmers and vulnerable sections in rural areas tend to get excluded
from receiving credit.
Table 1: The state of Indebtedness of Farmers in India
Percentage of Indebted Agricultural Households for each Size Class of Land Possessed
Size Class of Land Percentage of Indebted Estimated Number of Agricultural
Possessed (Ha) Agricultural Households Households (000)
< 0.01 41.9 2,389
0.01 - 0.40 47.3 28,766
0.41 - 1.00 48.3 31,481
1.01 - 2.00 55.7 15,457
2.01 - 4.00 66.5 8,434
4.01 - 10.00 76.3 3,301
10.00 + 78.7 370
All Sizes 51.9 90,201
Source: All-India Debt and Investment Survey, 2013 (NSS 70th Round)
Of the farmer households in India, 43.4 million (48.6 per cent) were indebted, according to
the All-India Debt and Investment Survey, 2001-03 (Ministry of Finance, 2007). Table 1
shows that share has risen by 2013. It had noted that landless labourers, share croppers and
small/marginal farmers are among the poorest in rural areas, and they receive very little
credit. What prevents them from accessing credit is the lack of land documents or other
documents verifying their identity. Most of them were borrowing to meet consumption needs,
13rather than for productive purposes. Many borrow from money lenders. Thus, the share of
non-institutional borrowing in total rural borrowing from all sources rose after 1991 (i.e., the
beginning of structural economic reforms in the Indian economy) from 32 to 39 per cent by
2002. The contraction of commercial bank branches (most of which are in the public sector)
in rural areas as well as the collapse of Primary Agricultural Cooperative Societies,
Cooperative credit Banks and of Regional Rural Banks after 1991 contributed to this process.
In the absence of sufficient credit giving institutions, informal money lenders thrive. Data
over time suggests that the share of institutional sources in outstanding debt in rural areas is
not rising; it was 35.1 per cent in 1993–94, 35.7 per cent in 1999–2000, 29 per cent in 2004–
05, but again rose to 36.6 per cent in 2009–10.
The high interest rates moneylenders charge has been the source of rural distress. About 85
per cent of the outstanding debt on cultivator households from institutional sources was on
interest rates of 12–20 per cent per annum. On the other hand, 36 per cent of cultivator
households’ outstanding debt from non-institutional agencies was at the interest rate of 20 to
25 per cent and another 38 per cent of outstanding debt at an even higher interest rate of 30
per cent and above (Ministry of Finance, 2007). All this strengthens our case for a basic
income transfer.
Over the period between census 2001 and 2011, the occupation structure in rural India has
been changing which underlines the need for financial inclusion in the form of institutional
credit access. The share of cultivators in the rural workforce fell from 31.7 to 24.7 (6 per
cent) and the share of agricultural labourers (who don’t own cultivable land) rose from 26.5
to 30 per cent. In other words, landless labour exceeds the number of land-cultivators which
shows the effects of shrinking farm size and rural distress. Clearly, landless labour cannot be
excluded from a MIG.
Our case for a basic income guarantee is reinforced because of a high degree of overlap
between poverty, malnutrition and indebtedness, especially indebtedness to non-institutional
sources of lending. In fact, 122 million persons in the marginal farmer households category,
and an additional 29 million persons in small farmer households category are estimated to be
undernourished (Government of India, 2007). Similarly, in 2009–10, 51per cent of landless
agricultural labour were poor, while the head count ratio of poverty for the self-employed in
agriculture was lower at 26 per cent (and 29 per cent for self-employed in non-agriculture)
(National Sample Survey, 2009–10).
Thus, there is a strong case for the introduction of a large scale programme to ensure a
minimum guarantee of income for the poor. The low income levels of small and marginal
farmers and agricultural labourers ensure that the poor rarely accumulate assets and if they
happen to do so, those assets are lost to droughts, floods, displacement by projects, and so on.
The small and marginal farmers and landless labourers need cash debts to meet their
consumption as well as contingency needs. This implies that their wage income goes to
servicing their debt, rather than building assets. This is an underlying reason why many
micro-credit customers are able to maintain high repayment rates but are rarely able to climb
out of poverty even after multiple cycles of loans.
14In general, the poor tend to be risk averse (see Binswanger, 1981), and hence the
developmental role of the government becomes extremely important. Targeted income
transfers thus become one feasible instrument for development, as insurance for the
vulnerable sections. In the absence of such insurance, vulnerability would beget vulnerability;
a person without a minimum level of consumption cannot be productive and hence becomes
even more vulnerable (Ravallion, 2003). 11
Covid19 is expected to worsen poverty globally, and certainly in India. In a study for WIDER
(Sumner et al, 2020) in a worst case scenario, the number of people in extreme poverty -
defined as earning under USD 1.90 a day (which is comparable to the Tendulkar poverty line
in India) - is forecast to rise from about 700 million to 1.1 billion. India is one of 5 countries
likely to be most impacted (other than Pakistan, Bangladesh, Indonesia and the Philippines).
4.1 The Design: A better Targeted Income Transfer
The cash transfer we propose must not be seen as a replacement of ongoing social welfare
schemes but as an extension of the ongoing schemes. Therefore, instead of UBI or even the
Quasi-UBI suggested by the Economic Survey 2016-17, a targeted income transfer would be
fiscally prudent and shield the vulnerable against economic shocks. These may be in the form
of income ‘top-ups’ (Dréze, 2019). At the same time, targeted basic incomes would be less
burdensome fiscally, but more stress must be paid on effective targeting (Banerjee et al,
2019).
A targeted Minimum Income Guarantee should be based on verifiable visible criteria with a
household as the unit rather than family as considered in the case of PM KISAN for which
family data does not exist. Moreover, when two or more families reside together in a
household, as in the case of large joint families in rural areas, the same household can receive
multiple income grants and gains more than others. Taking the household as unit would be
practical for better targeting and implementation. Households with the highest levels of
deprivation (as determined on the basis of the SECC criteria, discussed below) should be
given higher income guarantee.
SECC-2011 is a census of socio economic status of rural and urban households and allows
ranking of households based on predefined parameters. SECC 2011 has three census
components which were conducted by three separate authorities but under the overall
coordination of Department of Rural Development in the Government of India. Census in
Rural Areas was conducted by the Department of Rural Development (DoRD). Census in
Urban areas was under the administrative jurisdiction of the Ministry of Housing and Urban
Poverty Alleviation (MoHUPA). Caste Census was under the administrative control of
Ministry of Home Affairs: Registrar General of India (RGI) and Census Commissioner of
India.
In Table 2, rural households included as MIG beneficiaries number 10.9 cr households, (or
60.65 percent of rural households). We omit the 7.07 cr “automatically excluded households”
11
Visible examples of such successful insurance in the form of targeted transfers were seen in Rajasthan and
Karnataka in their social pension transfers for the elderly and widows (Dutta, Howes and Murgai, 2015).
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